Govt policies responsible for Nigeria’s consistent high inflation – World Bank chief | Dailytrust

Govt policies responsible for Nigeria’s consistent high inflation – World Bank chief

Shubham Chaudhuri, the World Bank’s Country Director for Nigeria
Shubham Chaudhuri, the World Bank’s Country Director for Nigeria

Shubham Chaudhuri, the World Bank’s Country Director for Nigeria in this interview with Daily Trust said the protectionist policies of the federal government to create a market for local products have over the years led to a high rise in inflation while the government failed to fix critical infrastructure needed for the manufacturing sector to grow. He also urged the federal government to harness its young population to stem economic growth through investment in the health and education sectors. Excerpts

Just recently, Nigeria was listed among the top 10 countries with the highest inflation rate in 2021, what can we do as a nation to solve this problem?

Inflation has been a real concern for us dating back to a year and a half because in Nigeria, since late 2019, inflation has been running above 15 per cent year-on-year. The major cause of it is food, meaning, increasing prices of food has been a lot more than 15 per cent. The larger structural factors that people associate with this increase are; insecurity driving up food prices and now, what is happening in Ukraine. However, if you think about insecurity and poor transport networks, they explain why prices and the cost of getting food to households is going to be high. But it does not explain why that cost should keep on increasing at an increasing rate, which is what Nigeria is experiencing.

If you are asking me what can be done, I think, the government response should be at two levels. On one level, I think it is a longer-term response to improving transport, security and agricultural productivity.

In other words, improving the food supply. If that helps, it will bring food costs down. The second part, which is a more immediate response, is the fact that a lot of the food price inflation is linked to specific policies of the government, which, while the intentions were good in practice, are having unintended consequences. If you look at what the inflation rate looks like over time, you will see a specific uptick in August 2019, what happened then, it was when the borders were closed.

The good intention was to help stimulate the domestic supply of agricultural items but the problem of domestic supply is not forthcoming because of other reasons that are preventing essential commodities that will support the sector.

Another is the access to foreign exchange for purchases of certain commodities including intermediate imports that domestic firms need to produce and add value. The intention was good and it was about the economic diversification agenda that Nigeria should increase domestic value but it inhibited firms from growing, majorly, due to lack of power, transport and insecurity.

Exempting these external barriers is not going to help increase domestic supply until the power situation is solved and the transportation network is improved. We have been saying to the government for a long time that the World Bank embraces the objective of economic diversification as fundamental for job creation but if the domestic supply is not forthcoming, what will happen instead is that there will be a shortage and prices will go up. That is exactly what is happening.

We also acknowledge that the Central Bank of Nigeria (CBN) is trying to address this now but some of the money supply growth and a lot of quasi fiscal development efforts of the CBN have also added to the money supply of currency in circulation without necessarily increasing the actual supply of goods and commodities. So, if you have more cash chasing the same amount of goods, the price will go up. With this combination, I will say self-inflicted kind of factors have contributed to the high inflation but these factors can be changed overnight and bring down inflation.

Nigeria’s population is projected to be the third in the world, what measures are you taking to help the country harness its population growth?

There is an urgent need for financing programmes or policies that will be helpful in helping Nigeria reap the benefit of its population, which we call demographic dividends. But it ultimately begins with how fertility digression can be attained, which means families choosing to have few children and investing more in each child, thereby, investing more in human capital as well as the future as the children transition into working age, when they turn 18 years of age.

There is the fact that Nigeria has a young and growing population as half of its population is below the age of 17. The average age in Italy or the US is over the age of 40 and that is an ageing population, Nigeria like the rest of sub-Saharan countries is young and growing, that is where the potential is but, in order to realise it, you have to be able to invest in the human capital of children and provide them with economic opportunities.

To do that, we have to talk about public health that makes sure families can plan and make conscious decisions. It is also about keeping adolescent girls in school. If you look globally, no single factor is more important in ensuring the welfare of children and investments in human capital than the education level of their mothers.

To ensure that is achieved, we have programmes to help Nigeria invest in human capital, like the $650m supporting primary health service, it is basic health for reproductive health that includes a basic package of health services that ensure children survive and grow up healthy and not stunted. We have $500m to keep adolescent girls in school or get them back to school because there is a high rate of dropout when they get to puberty. Then we have programmes that support or make it affordable for poor families to keep their children in school.

We are also supporting a national social safety net that would provide targeted cash transfers to the poorest and most vulnerable all across Nigeria. That was initially $500m but our board just approved another $800m. In basic education, we have another $600m programme to reduce the number of out of school children by supporting local communities to help improve schooling grants, giving incentives to the state to do a better job of attracting children back to school and another part in the last two years has been reaching out to children who are in non-traditional settings like Islamic or Quranic schools by providing them with basic literacy knowledge that is essential for them to have a decent life.

So, investments in supporting Nigeria’s human capital is the largest traction of our overall portfolio in Nigeria and the total portfolio is about $13bn in the past concessional financing that we have provided for a variety of government programmes at the federal and state level.

How do you track these projects and investments and what are the penalties for defaulters?

How our financing works is that before we present and negotiate the actual details of the financing and programmes, we have a detailed process that we call identification, preparation and appraisal.

This is where detailed discussions with government partners and other stakeholders are made to fashion out the specific development objectives of the programme. All of that is agreed upon and part of what is finally negotiated and captured in two points, one is in the programme appraisal document, which we present to our board, and the financing agreement between the World Bank and the government, which contains the signatory that is usually done through the ministry of finance on behalf of the federal government and the country director; including the general terms and conditions that have to conform with judiciary financial management and recording to monitor procurement goods to ensure there is no violation of social and environmental social safeguard standards.

Then, the function of our team is to help ensure that government partners follow all of these procedures. So, at the minimum, every six months, we have what we call implementation status to review and record the ratings of which aspects of the projects are proceeding well and which ones are not and what kind of immediate actions are needed. Usually, after each one of these, there will be a letter signed by me that details all our findings and it goes through the minister of finance, development minister and governors. But that is not sufficient, a big part of our outreach is to the media, civil society groups and others that everything we finance and support in Nigeria, their information is available on our website for the public.

 

 

 

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